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  1. #1
    Join Date
    Sep 2004
    Location
    Central Otago, ChCh, AKL
    Posts
    2,443

    Question Commercial Questions?

    Hi Team,

    I would appreciate some discussion / feedback on the following questions ( i may add more questions later on):

    1. Outgoing with multiple tenancy commercial building: when you charging outgoing like Rates, Insurance, do you the landlord take on the insurance cover and the rates then invoice the ALL the tenants monthly?, Yearly or is it better to include theses in the rent?

    2. When a property is in reasonable location but it is pre 1976 building, and the EQ rating is most likely not under 34%but also not higher then 67% (engineer report will be obtained within the due diligence time frame) how would you approach the offer price wise?? would you go in keeping in-mind that you want to upgrade the property to be 100% or just over 67% EQ rating??
    (take in account the cost is unknown at the initial offer stage).


    Glenn, Devo anyone comment please.
    Last edited by Orkibi; 03-05-2014 at 05:59 PM.
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  2. #2
    Join Date
    Jun 2005
    Location
    Nelson NZ
    Posts
    3,864

    Default

    Outgoings
    Almost anything goes these days. It is becoming very common for tenants to be charged the outgoings as part of the rent. Then there are variables of choice when dealing with a body corporate.
    Generally the best way forward is to start with the standard way of doing things. You can get away with this with normal commercial tenants like shops. Industrial tends to get less sophisticated tenants who are not always good with their paper work, so keeping things simple for them is the smart thing. Like combined rent and outgoings.
    So coming back to your situation. The owner gets invoiced directly these days by the territorial authority for rates, water and BWOF. The owner gets invoiced directly for insurance. These invoices all come in a various times. The best way is to let the property ex OPEX. This makes it look cheaper and they can compare apples with apples.
    The OPEX is on charged to tenants based on their percentage use of the building. Make sure you come up with 100%. Check each lease carefully and confirm it all adds up to 100%
    At the beginning of the new lease or rent review send the tenant an invoice. On that invoice put a monthly figure of OPEX. Each year review the amount charged versus what it cost you and issue an amended invoice.

    Coming back to the purchase. No one upgrades to 100%. In fact you do nothing until the council or the tenants force you. Big players like banks and Government departments call the shots and are forcing owners to spend big. Of the few upgrades I have seen the banks are great about continuing to pay the rent whilst the work is undertaken.
    I am not sure if this is common or not.
    I have been involved with a number of reports and costings to do work.
    Engineers are just like lawyers these days. Ask two experts and you get three answers and generally you are poorer and more confused (ignorant) than at the start.

  3. #3
    Join Date
    Sep 2004
    Location
    Central Otago, ChCh, AKL
    Posts
    2,443

    Default

    Thanks Glenn,

    At the beginning of the new lease or rent review send the tenant an invoice
    say the OPEX come up as $500 per month for each tenant (this is dividing the annual OPEX by number of tenants / 12)

    Are you invoicing tenants monthly based on that??
    sounds like good idea adding clause in the lease stating the % of OPEX payable and that the sum will be review annually.
    Is that makes sense?
    Last edited by Orkibi; 03-05-2014 at 08:33 PM.
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  4. #4
    Join Date
    Jun 2005
    Location
    Nelson NZ
    Posts
    3,864

    Default

    Quote Originally Posted by Orkibi View Post
    Thanks Glenn,



    say the OPEX come up as $500 per month for each tenant (this is dividing the annual OPEX by number of tenants / 12)

    Are you invoicing tenants monthly based on that??
    sounds like good idea adding clause in the lease stating the % of OPEX payable and that the sum will be review annually.
    Is that makes sense?
    Sorry that is not right at all. You do not divide the OPEX by the number of tenants! If say the total building was 1000 sq m and say four tenancies had say 100 sq m,250, 300,150 plus a common area (toilets and hall way) made up the final 200. Tenancy one pays 12.5%, tenancy two pays 31.25%, 3 pays 37.5% and 4 18.75% .
    When ever you do alterations you have to be very careful to calculate what the new percentages are. Many landlords are stupid and lazy so it is not unusual to find not all out goings are being fully charged. In some cases unscrupulous landlords actually collect in more than the full cost. The tenants need a GST invoice for tax purposes. So the invoice is for the whole year and then you specify what you want them to pay (GST inclusive) per month being the actual rent plus an estimate of their share of the outgoings. On top of the rates, common area cleaning and so forth all worked out at a percentage share basis you might also need to on charge AC power. Some tenancies have a check power meter that needs to be read. Sometimes you can make life easy for yourself with power and just make them pay a fixed amount and do a settle up / adjustment every 6 months or so.

    Who was it that said commercial investments were so much easier than residential?

  5. #5
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,332

    Default

    I agree with everything Glenn has said Orkibi.

    Perhaps you could give us the example property you're working on and we can provide the numbers?
    Squadly dinky do!

  6. #6
    Join Date
    Sep 2004
    Location
    Central Otago, ChCh, AKL
    Posts
    2,443

    Default

    Thanks Glenn and Devo,

    I will be coming back to this shortly once negotiation progress and i review the leases.

    Of the few upgrades I have seen the banks are great about continuing to pay the rent whilst the work is undertaken.
    Yes Glenn that's what i been seen here too.

    Re OPEX thanks for the details, i understand it need to be apportioned according to each tenant used/ leased area + shared area.
    In that case there is no shared areas.
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  7. #7
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,614

    Default

    Quote Originally Posted by Orkibi View Post
    Hi Team,

    I would appreciate some discussion / feedback on the following questions ( i may add more questions later on):

    1. Outgoing with multiple tenancy commercial building: when you charging outgoing like Rates, Insurance, do you the landlord take on the insurance cover and the rates then invoice the ALL the tenants monthly?, Yearly or is it better to include theses in the rent?

    2. When a property is in reasonable location but it is pre 1976 building, and the EQ rating is most likely not under 34%but also not higher then 67% (engineer report will be obtained within the due diligence time frame) how would you approach the offer price wise?? would you go in keeping in-mind that you want to upgrade the property to be 100% or just over 67% EQ rating??
    (take in account the cost is unknown at the initial offer stage).


    Glenn, Devo anyone comment please.
    Hi Orkibi,

    The issue is that it is often hard to know what the earthquake costs could be until you have the report. Might be $200k or $100k or???

    We recently spent $10k on engineers report as part of due diligence. Vendor agreed to pay around half ($5,000 approx.). I have a Waikato commercial building client who is great at working with engineers, and getting the price to realistic level. His price came in at just over $100k, but others were looking at it different and more like $300k.

    From this exercise we found that the cost to get from 17% to 67%, wasn't that different to go to the full 100%, so I would suggest you look at this option as might cost hardly any more. My understanding is that blue chip and government tenants want 70% or more.

    Also be careful of engineers simple look, as on this property vendor has simple report at around 40%, but upon more investigation dropped to 17% as concrete blocks weren't filled with concrete in our case.

    Banks and insurance Companies have big issues with low %!

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  8. #8
    Join Date
    Sep 2004
    Location
    Central Otago, ChCh, AKL
    Posts
    2,443

    Default

    thanks Ross.

    its its something to keep an eye for. i know of property which had report done and concluded from 34% to 100% around 200k.
    vendor have to do it for keeping the national tenant...
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  9. #9
    Join Date
    Apr 2009
    Posts
    994

    Default

    The banks will still approve so long as you have a 50% plus deposit and a plan to bring the rating up to 67%.

    Its an opportunity for investors as it shuts out a lot of buyers who don't have 50%.

  10. #10
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,332

    Default

    I have found that as long as you're well over 33% (like say 45% and above) in Auckland, everyone's fine about it.
    Squadly dinky do!


 

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